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Deputy City Auditor Says City Hall's Deal With Ice Dogs Cost LB Taxpayers About $1.5 Million Since 99-00 Season; Auditor's Office Recommended Action: "Receive & File"
(June 21, 2005) -- In a stunning item agendized for the City Council's "consent calendar" -- normally reserved for items not meriting individual public discussion -- a report done by a Deputy City Auditor discloses that under a system of rebates incorporated in agreements negotiated by LB City Hall, "during the past five years that the Ice Dogs have played in the [LB] Arena, the City has incurred a net loss of about $1.5 million."
LBReport.com posts a link below to the entire review with salient portions below.
The report says the City Auditor's office review was conducted to determine if terms and contractual obligations were met -- and it determined that they were. However, the report by Deputy City Auditor Sam A. Joumblat on behalf of City Auditor Gary Burroughs also indicates that under the deal City Hall negotiated with the Ice Dogs, LB taxpayers effectively incurred a loss of $1.447 mllion since the 99-00 season.
The report, posted in full on a link below with salient portions follow, indicates that the losses are the result of generous terms agreed to by LB City Hall officialdom. It indicates that the Ice Dogs "use of the Arena resulted in a net loss to the City over the past five years of:
Incentive fees paid to SMG on rebates to Ice Dogs: $554,000
City's share of net losses from Ice Dogs' games: $893,000
City's Net Loss on Ice Dog Games: $1,447.000"
The report also discloses that the Ice Dogs have requested that City Hall consider additional cost concessions totaling about $254,000 over a two-year period...and in response City Hall estimates that it could receive "up to $1.5 million per year in net revenue if the Arena were used as an indoor concert or event venue, instead of hosting Ice Dogs' games."
The Auditor's office concludes: "We are in agreement with the Community Development Department's recommendation that no additional cost concessions or revenue rebates should be given to the Ice Dogs."
Salient parts of the Deputy City Auditor's report follow:
...In 1996, the City, SMG [Spectacor Management Group, which operates the LB Convention & Entertainment Center] and the Ice Dogs entered into a supplemental agreement (Contract No. 24555) for the purpose of bringing the Ice Dogs professional ice hockey team to the Long Beach Arena for a five-year period, with options for two additional five-year periods that the Ice Dogs can exercise...
The agreement gives the Ice Dogs part of the game revenues as follows:
- 50% share of the revenue payable from the sale of concessions and food
catering.
- 50% of the parking revenue, but not less than $2 per car, based on game
attendance, not actual parked cars.
- 100% of the promotional. [footnote omitted]
However, during the term of the agreement, if annual season ticket sales do not total at least 3,000 [footnote: "Since moving to Long Beach, the Ice Dogs have never exceeded 3,000 season ticket sales."] and group sales per game do not average 200, the Ice Dogs will be rebated the following additional game revenue:
- The remaining shares of revenue payable to the City for parking: concession
and catering.
- $1.000 of the $5,000 rent paid, per game...
The above rebates reduce convention center profits, which then have a negative
impact on SMG’s incentive fee. Therefore, SMG was made whole on the above-shared revenue based on a letter of agreement the City of Long Beach and SMG signed on January 7, 2000, which stated in part:
In the past, the City has acknowledged in writing each year that
the Ice Dogs Rebates are to be added back to the net operation income of the Center when calculating the amount, if any, of SMG’s incentive fee. Conclusion: The City and SMG agree that for fiscal year ending September 30, 1999 and all subsequent years that the amount of the Ice Dogs’ Rebates will be recorded as an operation expense of the Center and then added back to net operation income in order to calculate SMG’s incentive fee ..."
What this means is that the City adds the Ice Dogs’ game revenue rebates back to available income for the purpose of calculating SMG’s 25% incentive fee. This resulted in SMG being paid about $554,000 (25% of $2,216,424) in incentive fees based on the Ice Dogs’ game revenue rebates paid.
The Long Beach Convention and Entertainment Center has lost about $1.2 million as a direct result of hosting Ice Dog games in the Arena...
Because of the revenue sharing incentive fee between the City and SMG (distributed 75% and 25% respectfully), the City’s share of the losses for the past five seasons is about $893,000 (75% of $1,191,058). From SMG‘s perspective, they share in these losses because the Convention and Entertainment Center had a profit in every year during this five-year period. SMG’s share of these losses, by way of a reduction in their incentive fee, is about $298,000 (25% of
$1,191,000).
Thus, the Ice Dogs use of the Arena resulted in a net loss to the City over the
past five years of:
Incentive fees paid to SMG on rebates to Ice Dogs: $554,000
City's share of net losses from Ice Dogs' games: $893,000
City's Net Loss on Ice Dog Games: $1,447.000
CD recently completed a review of the Ice Dogs' request to the City to consider
additional cost concessions totaling about $254,000 over a two-year period. Part
of CD's review included an analysis of opportunity revenue to the City if the
Arena was available for use during the 36 to 44 weekends it is used by the Ice
Dogs. CD believes that the Arena could function as an attractive concert or
event venue, particularly during the hockey season, as indoor concerts are
preferred during that time period. CD estimates that, over time, an average of 30
concerts or events could be booked on an annual basis. These concerts or
events would likely average net income of $50,000 on a weekday night and
$100,000 on a weekend night. These potential concerts or events could provide
annual net opportunity revenue to the City of about $1.5 million per year.
We are in agreement with the Community Development Department's
recommendation that no additional cost concessions or revenue rebates should
be given to the Ice Dogs.
To view the Deputy City Auditor's report in full, click here.
A letter transmitting the document to the Mayor and Council on behalf of City Auditor Gary Burroughs, signed by the Deputy City Auditor, doesn't indicate the stunning findings. It lists the recommended action as: "Receive and file."
Items agendized for the City Council's consent calendar are not discussed individually unless a Councilmember so requests, or a request is made to the City Clerk by a member of the public prior to the start of the Council meeting.
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